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Market report: Monday, December 14

Business

UPDATE: The S&P/ASX 200 is languishing below the 5,000 mark as sectors across the broader Australian share market sink into the red.

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The energy and mining stocks led the losses following further falls in the oil and iron ore prices.

Oil Search and Santos both slumped more than 4 per cent while the miners were also a drag. BHP Billiton lost more than 2 per cent and Rio was off 1.5 per cent.

The big banks added to the pain, all lower by about 1.5 per cent.

At 8.20am (AEDT) on Monday, the March share price index futures contract was up one point at 5,021.

Investors appear nervous on expectations of the first US interest rate rise in nearly a decade, with the Fed meeting on December 16-17.

Also, oil is dragging on markets with investors worried that a weakness in commodities signals a broader slowdown.

Investors also appeared worried about declines in China’s yuan and in high-yield debt markets.

Locally, no major economic or equities news is expected on Monday.

NEW YORK – US stocks have closed sharply lower, with the S&P 500 ending its worst week since August, as plunging crude oil prices compounded investor nervousness on expectations for the first US interest rate rise in nearly a decade.

Oil dragged down the market as a whole, as investors worried whether a weakness in commodities signalled a broader slowdown.

Investors were also worried about declines in China’s yuan and in high-yield debt markets.

Dennis Dick, head of markets structure at Bright Trading LLC in Las Vegas said, the sell-off gained ground ahead of the close as investors took profits on stocks such as Amazon.Com, which had performed well in 2015.

LONDON – Britain’s top equity index has fallen to a 10-week low as investors dumped shares in companies focused on South Africa following a reshuffle in the country’s government.

Commodities shares also came under pressure on concern about the pace of economic recovery in China and a weakness in Chinese yuan, which could hit companies exporting to China.

“Old Mutual was punished again for its links to South Africa,” said Jasper Lawler, an analyst at CMC Markets.

“The worry … is that new Finance Minister David van Rooyen may have been put in to ramp up spending for political purposes against the best interests of the economy.”

HONG KONG – Beaten-down oil prices and a slide in China’s yuan to four-and-a-half year lows left markets in a sombre mood.

Volatile oil markets and worries about China, the world’s biggest commodities consumer, have pressured many markets ahead of a widely anticipated interest rate rise by the US Federal Reserve next week.

“We are in risk-off mode,” said Piotr Matys, emerging market currency strategist at Rabobank in London.

“Another round of selling in commodities with oil prices at new lows has sent global stocks lower and emerging market commodity currencies are under pressure.”

China’s yuan fell to 6.4564 per US dollar and posted its longest weekly losing streak in a decade, dragging emerging Asian currencies lower, on concerns about its slowing economy and expectations of a US rate rise next week.

ENERGY

Brent crude posted its biggest weekly percentage drop in over a year, while US crude posted its biggest such decline in roughly a year.

Brent crude settled down $US1.80, or 4.53 per cent, at $US37.93 a barrel after hitting $US37.36, its lowest since December 2008. US WTI crude settled down $US1.14, or 3.10 per cent at $US35.62 after hitting $35.32, its lowest since February 2009.

PRECIOUS METALS

Gold prices have bounced, erasing earlier losses as the US dollar and US Treasury yields fell, but was still on track for a seventh weekly drop in eight as investors positioned themselves for a likely US rate rise.

“Temporary short squeezes could disturb the long-term downward trend but we still expect prices around $US1,000 next week,” ABN Amro analyst Georgette Boele said.

“The euro/US dollar bounce and 10-year US Treasuries easing today have helped lift gold prices, and trump the weakness in oil and expectations for a rate hike next week,” said Suki Cooper, precious metals analyst for Standard Chartered Bank in New York.

BASE METALS

Copper has marched to a two-week high, with investors closing out bearish positions as the US dollar weakened and following comments that the economy of top metals consumer China may be on the mend.

“I wouldn’t be surprised to see some level of short-covering, especially ahead of the Fed rate decision next week and close to the year-end some people might want to square some of those short positions,” said Xiao Fu, head of commodity market strategy at Bank of China International in London.

Short covering occurred after China’s National Bureau of Statistics said the Chinese economy was showing early signs of recovery.

“The upbeat comments from China’s NBS today may also have prompted some short covering ahead of China’s November economic data release tomorrow,” Fu said.

BEIJING – China’s activity data was stronger than expected in November, with factory output growth picking up to a five-month high, indicating that a flurry of stimulus measures from Beijing may have put a floor under a fragile economy.

China’s central bank has signalled a change in the way it manages the yuan’s value by potentially loosening its peg to the US dollar and instead measuring it against a basket of currencies.

WASHINGTON – A gauge of US consumer spending rose solidly in November as the holiday shopping season got off to a fairly brisk start, suggesting economic momentum for the Federal Reserve to raise interest rates next week.

ASX stocks to watch

BHP – BHP BILLITON

STO – SANTOS: Energy sector stocks could be hit on Monday after the price of world oil plunged, with WTI dropping more than three per cent and Brent losing more than 4.5 per cent.

AAP

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